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Sunday, 21 January 2007 |
- Sterling remains strong ahead of BOE minutes
- Canadian Dollar remains weak on oil price declines
Sorry the report is a tad late this morning; I had to rush back from
collecting my new motorbike from Sidmouth beach. It’s a bit wet and
salty but I got it for a good price - they told me it fell off the back
of a ship, the jokers. We begin the week with the Pound retaining
levels of strength it probably doesn’t deserve after the widening hole
in the government’s finances was revealed on Friday. Gordon is taxing
us faster than Richard Hammond in a jet car and yet he is borrowing at
an alarming rate as well. Government debt is up 50 percent since G
Brown took office and, at £507 billion, is larger even than my
overdraft. Somehow, the markets have ignored this factor, preferring to
focus on the yield advantage that the Pound offers over the Japanese
Yen, Swiss Franc and Euro. Ironically, these high interest rates are
likely to be the undoing of the UK economy over a period and house
prices which are reported to be defying gravity, may well start to ease
as the effects of higher mortgage rates combined with the record
borrowing levels needed to get onto the housing market ladder, start to
bite. Having read that last sentence back, it does appear a little
negative but I think the markets are overlooking a looming problem with
UK PLC and I think we should be wary of ignoring it ourselves. The rest
of the week is lighter than last week on the data front but we have the
minutes from the last Bank of England meeting and the New Zealand
interest rate decision on Wednesday, we get the German IFO business
sentiment report on Thursday and US housing market data on Thursday and
Friday. All are important as are the very overbought levels seen in the
Pound across the board and the oversold level seen in the Japanese Yen
which could have repercussions in the USD and Australasian currencies.
The other news of the week is the oil price which is still being held
down but UK pump prices still don’t reflect it. What a liberty.
Oil struggling below $51 per barrel is keeping the Canadian Dollar weak
at the moment. However, colder weather is starting to affect areas of
the US and that will increase demand and raise the price according to
oil analysts this morning. This expected rise will give the Canadian
Dollar a boost and that may be enough to knock GBPCAD off the pedestal
that it has occupied for a week or so. A correction of this upward
momentum in the GBPCAD exchange rate is well overdue and could involve
a sharp drop to C$2.20 or thereabouts as stops are hit and automated
trading takes over. However, until traders start to get more realistic
about the UK economy, this is about as far as the correction in GBPCAD
is likely to go. However, we have a trickle of Canadian data this week
including inflation, retail sales and leading indicators so it would be
unwise to rule anything out until Tuesday afternoon at least when the
data’s released.
The Euro is still weak in real terms. GBPEUR is still at the top of the
range and those with Euros to buy for private or commercial purposes
must be rubbing their hands with glee. The problem is that such a
sustained period of Euro weakness is bound to create an air of
complacency and I have heard the comments suggesting €1.55 and above as
targets in the last week. However, I remain sceptical and reports this
morning that many investment banks are urging their speculative clients
to buy the Euro against the Japanese Yen and USD, lends weight
to the argument that we should be making hay while the sun shines as
far as Euro buyers are concerned. Add to this the forecast for an
upturn in German business sentiment and a rebound in Eurozone
industrial orders and the argument for Euro strength starts to hold
water.
Prejudice is a great time saver. You can form opinions without having to get the facts.”
E. B. White
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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